Will TRIM solve or sustain Transnet’s woes?

South Africa’s logistics crisis stems from Transnet’s failure in managing railways and ports. The TRIM plan claims to enable private-sector rail access, but NICK PORÉE warns that it could merely be an attempt to recover Transnet’s losses, keeping it reliant on fiscal bailouts and monopoly pricing.

South Africa is struggling with a logistics crisis, primarily caused by the failure of the state-owned company (SOC), Transnet, in managing railways and ports. The announcement of open access to railways for private sector train operations caused a ripple of interest in those industries beleaguered by service failures. The prospect of commercially competitive bulk and intermodal railway services and international-class port development offers hope for the country’s African Continental Free Trade Area (AfCTFA) aspirations, but only if there is to be real restructuring of railways and ports.

In order to offer “open access”, it is essential to separate track management from train operations into completely separate functions; the process of establishing the Network Manager, Economic Regulator, and Safety Regulator must be separated from all aspects of train operations. Planning of the restructuring and the tariff regime cannot be managed by a competing Train Operating Company (TOC); it must be managed by an independent department or agency, in the same way as the South African National Roads Agency (SANRAL) manages national roads.

In the final edition of the Transnet Railway Infrastructure Management (TRIM) plan, it is clear that the intention is to seek engagement and investment in Transnet’s monopoly hold over railways. Analysis of the TRIM proposal shows inconsistencies and clear indications that it is based on recovering the depredations and inefficiencies of Transnet Freight Rail (TFR), including wagon fleet replacements. The parlous state of the railway is underscored by TRIM’s initial assessments, which indicate that considerable investment – estimated at approximately R70 billion – is required over the next five years to restore the current rail network and facilitate regulated third-party access, as reflected in the accompanying table. Presumably, the same philosophy will be applied to ports. 

There is mention of the need for recovery of the badly maintained, severely damaged, and vandalised infrastructure – but no apparent effort to reduce the length of track maintained. It also makes no mention of Passenger Rail Agency of South Africa (PRASA) track, or the unviable branch and interstate lines, which must be included in the network managed by the infrastructure manager in order to manage slot allocations and train operations control.

According to the proposal, “TRIM views open access to the rail network as critical to increase overall rail volumes”; this would be possible with open access and new private sector competition with road haulage. The volume estimates appear, however, to be based on TFR current business.

The description of the “model” on which the proposal is based raises more questions than it answers and will require extensive engagement before anyone has comfort and clarity on the rationale for the return on investment (ROI) calculations. According to Transnet, the preferred option is full cost recovery, as it provides clear pricing signals for industry investment while considering the external forces of competition with road transport, market growth imperatives, density of corridors, performance of commodity prices and commodity cycles, port proximity, and security of the rail system. This suggests the typical cost-plus approach of a monopoly, where current costs form the baseline – with no mention of downsizing, addressing overstaffing, or implementing productivity improvements. It appears to assume that Transnet’s recovery of past losses will be incorporated into the pricing structure. However, the proposal’s figures are difficult to reconcile with the R37.9 billion cost, R31.1 billion revenue, and R11.2 billion loss reported in Transnet’s 2023/24 financial statements.

It is, however, noted that “an inappropriate tariffing approach could result in rescheduling of maintenance and capital expansion programmes and projects, and an inability to service current debt, thus compromising the achievement of the end of term target of 250 million tonnes per annum by the seventh administration”. This sounds like we’re going back to the normal dependence on fiscal bailouts – like the current R42 billion “facility” from Treasury…

The proposal says that “the main drivers of TRIM’s tariff proposal are therefore the maintenance and capital programme costs and the operating, maintenance and fuel costs to run a viable and sustainable business. These factors are particularly challenging currently because of the low availability of the network within an environment of significant financial challenges to meet its operating costs”. This appears to confirm the fact that TRIM is based on the recovery of Transnet and is not, in fact, a process to create an independent Network Manager of a railway system where commercially competitive TOCs provide modern, efficient customer-oriented multimodal logistics services such as those in Europe.

The process of establishing open access echoes the recent words of Kristalina Georgieva, managing director of the International Monetary Fund (IMF). “The private sector has to be in the lead in transforming economies in the region through entrepreneurship, job creation, and innovation,” she said during her keynote speech at the Ninth Arab Fiscal Forum in Dubai on 10 February. ​

The role of governments is to foster the right environment for this private sector-led growth – by strengthening governance, modernising public institutions, reducing bureaucracy, encouraging youth and female employment, and improving access to capital… as well as by designing and communicating policies that put people first and increase social support. The alternative being proposed for South Africa is a long and costly “restoration” of the SOC, potentially returning it to the inefficiency that led to the logistics crisis in the first place. The skewed process and the tariffs are unlikely to attract any private sector investment unless there is restructuring and the carving up of the SOC into competitive enterprises.